Doing Well By Doing Good

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Think socially responsible investing is for do-gooders who are willing to settle for lackluster returns? Don’t tell that to Robert Cotten, a 51-year-old retiree whose portfolio of stocks and mutual funds was large enough to let him quit work a few years ago. Cotten, a former assistant general counsel for Hughes Electronics Corp. in Los Angeles, became a socially responsible investor back in 1985. At the time, General Motors had just taken over the company, then called Hughes Aircraft Co., and Cotten, like his colleagues, received a retention package to stay an additional five years.

Then, he took the company’s three lump-sum payments and contacted a stockbroker to put his money to work. There was just one stipulation, however. "I gave him a list of things to avoid," he recalls. "I started off by telling him to avoid any company doing business with South Africa. Over time, we crossed tobacco companies and nuclear weapons [makers] from the list."

That’s not to say that Cotten suffered in the slightest for being picky. His retirement fund is currently returning enough to make living quite comfortable and allows Cotten a variety of side pursuits, ranging from studying Chinese in his spare time to sitting on the boards of a venture capital firm and two nonprofit corporations. The moral of the story? In Cotten’s words, "Socially responsible investing does pay off-you may not get the big bang of an Amazon.com, but if you stick with it, you’ll realize some very good returns."

DECENT RETURNS WITH GOODY-TWO-SHOES FUNDS Most goody-two-shoes funds have yet to outpace the broader market in 1999. As of May 7, the 67 socially responsible portfolios tracked by mutual-fund researcher Morningstar Inc. in Chicago, posted a year-to-date gain of 4.45%, underperforming the Standard & Poor’s 500 Index’s 9.85% return. However, socially responsible funds are loaded with technology shares, which should boost their performance over the long haul.

Still, socially conscious practices and good corporate performance are not mutually exclusive, according to Ann Kusumoto, a diversity consultant who has worked for companies as varied as AT&T, Hewlett Packard and BankBoston. Says John W. Rogers Jr., president of Ariel Capital Management Inc./Ariel Mutual Funds, a Chicago-based socially responsible investment firm that runs the three top funds on the black enterprise Black Mutual Funds list (see "A Rocky Climb," April 1999): "We may be looking for companies doing the right thing morally, but more often than not, that’s just the right thing businesswise."

Besides good business practices, there are also a few other good reasons why many socially responsible funds have been champions of late. One stems from just what socially responsible funds invest in and avoid. Joseph Rocco, an analyst for Morningstar, says these funds generally shy away from companies in the tobacco, alcohol, gambling or defense industries-all sectors that have had troubles of late. Socially responsible funds also steer clear of industries that have environmental problems. At the same time they look for